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Services Firms Follow Ai in Shifting Compensation Models

An article in this morning’sWall Street Journal(click here; subscription required) points out that many services firms, from consultancies to ad agencies to law firms, are resorting to performance-based compensation models as a way of differentiating themselves in the currently brutal business environment. The firms cited in the article point out that customers are demanding better terms–looking for something more tangible than the once-sacred “billable hour”. Certainly corporate spending has been hit dramaticallly in almost all sectors over the last nine months, and services firms are fighting even harder than ever for every available opportunity. Performance-based or outcomes-based pricing is looking more attractive than before.

In fact, Audacious Inquiry has offered performance-based terms to its clients for some time now. We arrived at such contracts not out of economic necessity (desperation) but as a way of building the bond of trust with our clients. Typically, we will agree with the client on a set of goals or outcomes at the project’s outset–they’ll be incorporated into the contract or project charter. Some percentage of the project’s total dollar value (based on time and materials, offered at a highly market-competitive rate) will be tied to outcomes, say 25% of the total project value.

At predetermined milestones, or upon the project’s completion, AI will sit with the client to be “graded” on the extent to which all of the goals were met. If the client agrees that AI met perfectly all of the goals, then the final bill in this scenario would be 125% of the billable time for the project. The process more perfectly aligns the project team’s interests with the clients’. It also ensures that a tight feedback loop exists among all the stakeholders, from the start of work to the end. While it’s not an appropriate fit for every client or every situation, we believe that such outcomes-based compensation models have a place in the toolkit of services firms in good economic times as well as bad.

Services Firms Follow Ai in Shifting Compensation Models

An article in this morning’sWall Street Journal(click here; subscription required) points out that many services firms, from consultancies to ad agencies to law firms, are resorting to performance-based compensation models as a way of differentiating themselves in the currently brutal business environment. The firms cited in the article point out that customers are demanding better terms–looking for something more tangible than the once-sacred “billable hour”. Certainly corporate spending has been hit dramaticallly in almost all sectors over the last nine months, and services firms are fighting even harder than ever for every available opportunity. Performance-based or outcomes-based pricing is looking more attractive than before.

In fact, Audacious Inquiry has offered performance-based terms to its clients for some time now. We arrived at such contracts not out of economic necessity (desperation) but as a way of building the bond of trust with our clients. Typically, we will agree with the client on a set of goals or outcomes at the project’s outset–they’ll be incorporated into the contract or project charter. Some percentage of the project’s total dollar value (based on time and materials, offered at a highly market-competitive rate) will be tied to outcomes, say 25% of the total project value.

At predetermined milestones, or upon the project’s completion, AI will sit with the client to be “graded” on the extent to which all of the goals were met. If the client agrees that AI met perfectly all of the goals, then the final bill in this scenario would be 125% of the billable time for the project. The process more perfectly aligns the project team’s interests with the clients’. It also ensures that a tight feedback loop exists among all the stakeholders, from the start of work to the end. While it’s not an appropriate fit for every client or every situation, we believe that such outcomes-based compensation models have a place in the toolkit of services firms in good economic times as well as bad.